Financial Management for Hotel Industry

This document discusses the concept of financial management and the viability of zero-based budgeting in the hotel industry. It explores the advantages of zero-based budgeting over traditional methods and provides insights on how to implement it in an organization. The document also includes budget calculations and a reference list.

FINANCIAL
MANAGEMENT FOR
HOTEL INDUSTRY
[Document subtitle]

Executive Summary
Budgets are prepared by every organisation for keeping the cost and expenditures of the
business under control. A well planned and structured budget provides the company a defined
direction to follow. Company using the budgeting identify variances by comparing actual results with
the budgeted figures. Zero-based budgeting is used by the organisation for evaluating all the cost
centres and preparing budgets considering areas where cost could be cut or reduced. It helps the
company in achieving its desired goals and objectives more efficiently.
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Table of Contents
Executive Summary...............................................................................................................................2
1.Introduction........................................................................................................................................4
2.Zero Based Budgeting.........................................................................................................................5
2.1 Zero-based budgeting..................................................................................................................5
2.2 Advantages of Zero-based budgeting over Traditional Based......................................................5
2.3 How the Organisation Might introduce Zero-based Budgeting...................................................6
3.Conclusion..........................................................................................................................................7
4.Budget Calculations............................................................................................................................8
5. Reference List....................................................................................................................................9
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1. Introduction
Budgeting refers to process in which spending plan of the business is created. Spending plan
allow management of company to ensure that company is having cash for carrying out the activities
of business. This helps the management in deciding in advance about the possible options that it
may adopt for meeting the requirements of business. Present report is based on the concept of
financial management and viability of zero based budgeting to be implemented in the organisation.
It will be defining the zero based budgeting, reasons for preferring it over traditional method and the
manner in which such technique could be implemented in practical in an organisation.
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2. Zero Based Budgeting
2.1 Zero-based budgeting
It is the approach of making budgets from the scratch . It is not based over previous budgets
like the traditional budgets. Budgets is prepared by the company taking zero as base. The approach
requires the company to justify the expenses and costs which company is planning to include in the
budget. It is prepared for ensuring that all the components of annual budgets are relevant cost
effective and helps it to improve the savings (Ibrahim and et.al., 2017). It is also referred as cost
discipline which helps the business in improving the resources planning, organisational collaboration
and the employee engagement. ZBB is credited often with the measures for reducing costs. It is not
focused exclusively over savings. It helps the business in solving issues and problems faced regarding
allocation of resources. It ensures that assumptions of company are adequate in preparing the
budget Zero based enables company in aligning the objectives of organisation.
Primary objective behind creating zero-based budgeting is to reduce the unnecessary costs
by looking at the areas where potential costs could be cut by the organisation. Zero based budget
requires increased involvement of employees as they give the actual details of the process carried
and the resources that are required for carrying out the process in cost effective manner. They will
provide company regarding the expenses to be borne and where the costs could be controlled and
cut where necessary (Oraka, Sopekan and Udeh, 2016). It is increasingly used by the organisation
for keeping control over the expenditures and increasing costs. However the budget consumes
considerable time of management and senior in preparation. They are required to analyse all the
information regarding the item to be included in the budget. Cost of preparing this budget is high as
it involves time of the management and information from different sources.
2.2 Advantages of Zero-based budgeting over Traditional Based
Methodology of ZBB operates in the stark contrast with annual traditional budgeting
approaches. The traditional budgets are produced often by actual budgets of previous years and
making adjustments to it. The adjustments made in the budget are related to the increase in prices,
inflation rates and some more factors that could influence the budget. Incremental and simplified
budgeting leads to inefficiencies and opportunities for the greater costs savings. On the other ZBB
requires company to prepare annual budget from the starting. It enables company to verify the
components of annual budgets that they are cost efficient and helps company to save considerable
costs (Adah, 2016). ZBB focus over the costs and expenses that are required to be kept. It examines
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the cost area to identify the tools for cost reduction where the traditional budgets are restricted
over previous budgets.
Zero based budgeting helps the organisation to ensure what budgets are required to be kept
and provides the way in which the processes should be performed. Traditional budget only focus
over increasing the effectiveness and efficiency of employees and production processes (Lin and
Wu, 2017). Management using ZBB develops detailed comprehensive initiatives for designing,
planning and the execution of budgets within the organisation. Technological advancements have
provided the company in re-evaluating opportunities of the zero based budgets and its
implementation. ZBB are based over is based over the decisions made from evaluation of
information gathered which provides more accurate results as compared with the traditional budget
that are based on cost principles. It is more responsive and gives clear results . As it is prepared from
the fresh the variances between the actual and budgeted figures are very less. It does not require
company in wasting time over identifying the causes of variances and then taking steps and
measures for reducing them like traditional budgets (Hijal-Moghrabi, 2019). ZBB follows a
straightforward approach which gives organisation clear direction to follow unlike traditional
budgeting which uses monotonous approach.
2.3 How the Organisation Might introduce Zero-based Budgeting
ZBB could be efficiently introduced in the organisation after evaluating the goals and
objectives that are required to be accomplished within the given time period. Being hotel chain is
mainly indulged in providing services which requires management to analyse the cost associated
with providing services. GWR Ltd focuses over the evaluation of different cost areas of the company.
It is essential for company to identify and eliminate the unnecessary activities when company is
implementing ZBB in the process. On implementation of ZBB it will be justifying every component of
budget (Vadapalli, 2019). This will help in inspecting the cost areas which will help in saving cost
and could be performed in more cost effective manner. ZBB will streamline the budgeting process of
GWR ltd and clearly communicating goals and plans of organisation. It will provide the company
with lower risk approach in a resourced and well financed manner.
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3. Conclusion
From the above report it could be evaluated that zero based budget is being increasingly used by the
organisations for attaining higher efficiency in managing its resources. Traditional budgeting
methods because of various defaults and drawbacks are losing confidence of management. ZBB is
more flexible approach as compared with traditional budgeting. It is enabling the organisations to
eliminate areas of costs that are not productive and making cost savings for company. As the budget
is prepared from the scratch it covers all the cost areas and factors that could influence budgets
later. It could be stated that zero based budgeting is very useful for the organisation in controlling
costs and expenditures.
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4.Budget Calculations
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5. Reference List
Ibrahim, M., and et.al., 2017. Zero-Based Budgeting is a Panacea to Fiscal Distress: Do the
Perceived Benefits Significantly Influence its Adoption in Borno State?. Saudi Journal
of Business and Management Studies. 2(10). pp.943-950.
Oraka, A.O., Sopekan, S.A. and Udeh, F.N., 2016. Zero-based budgeting: Pathway to
sustainable budget implementation in Nigeria.
Adah, A., 2016. Zero-based Budgeting System: Is Budgeting System the Determinant of
Budget Implementation in Nigeria?. International Journal of Economics and Financial
Research. 2(11). pp.192-198.
Lin, Z. and Wu, Y., 2017, June. Application of Zero base Budget in Maintenance Operation
and Maintenance Fee of County Power Supply Company. In 2017 International
Conference on Management, Education and Social Science (ICMESS 2017). Atlantis
Press.
Vadapalli, R., 2019. Relevance of Zero-Based Budgeting (ZBB) to Commercial Banks in
Asia under Present" Slow Economic Growth"-A Perspective on Cost Governance. The
Management Accountant Journal. 54(9). pp.36-39.
Hijal-Moghrabi, I., 2019. Why Is it So Hard to Rationalize the Budgetary Process? A
Behavioral Analysis of Performance-Based Budgeting. Public Organization
Review. 19(3). pp.387-406.
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